Why do Canada’s wireless critics want to turn back time?

TELUS is making the future friendlier for wireless consumers

When a top Bay Street equity analyst recently identified ten common myths about the state of the Canadian wireless industry and countered them with current data, reaching the conclusion that our home-grown industry is serving Canadians very well when compared to the U.S., the industry’s critics dogmatically set out to prove him wrong with numbers of their own. Unfortunately, they once again relied on outdated and inaccurate data to support their oft-repeated claims. Fortunately, policy-makers and regulators know that, because they demand real economic analysis based on current data.

The only question now is why the industry’s critics refuse to use current data and recognize how much has changed in the past five years. Think about the wireless phone you had five years ago, and the experience of browsing the web on it. Would you go back to using it, or do you prefer the one you have today? The critics often use data from four or five years ago despite the availability of newer reports and data – as if they think you’re still using your old phone, and that nothing has changed in the market.

The fact is a lot has changed in the last few years, and a lot of that change has been led by TELUS.

The claim that Canada’s wireless market is uncompetitive is, frankly, not just woefully misleading, it is an insult to TELUS’ team members, who work hard every day to earn Canadians’ business by adapting how we do things to their evolving demands. We’re proud of our record of building one of the best wireless networks in the world, and we’re proud of the fact that independent statistics show that we have some of the most satisfied customers in the industry. We object to self-interested attempts to portray Canada’s wireless market in a bad light by employing out-of-date statistics, inapt comparisons, and cheap shots.

In the attached paper (hyperlinked version here), I challenge the claims that Canada’s wireless market is “woefully uncompetitive” (as Professor Michael Geist puts it) and that Canadians “pay some of the highest prices in the world for some of the worst services” (as OpenMedia puts it). The most recent international statistics available show that prices for the kind of wireless services that Canadians actually use are below the OECD (Organization for Economic Cooperation and Development) average, in spite of the enormous area served by wireless services in Canada, our high standard of living, and the fact that Canadians use their wireless devices more than just about anybody else in the world. Canada also has some of the best networks in the world, in spite of the enormous cost of building and constantly upgrading them.

Let me be clear, TELUS does not deny that many Canadians have had bad experiences with their wireless carrier, including us, in the past. There’s no denying that the “horror stories” that OpenMedia solicited from Canadians are real (although many were from several years ago). Instead of hiding from those sentiments, we’ve faced them head-on and significantly changed the way we do business and, judging by the number of new customers we have attracted recently and the fact that fewer customers leave TELUS than our competitors, our customers know it. Yet our industry’s critics refuse to recognize that, and instead prefer to dogmatically rely on out-of-date statistics that do not fairly or accurately describe our company, our industry, or our country, in spite of our constructive attempts to encourage them to use current data.

In fact, many of the things that OpenMedia’s report says annoy consumers – three-year contracts, high early termination fees, and bill shock from international data roaming – have already been changed by TELUS and will change uniformly across the industry once the CRTC wireless code of conduct comes into force. Many of the irritants that OpenMedia points to as evidence that our wireless market is ‘broken’ are either no longer prevalent in the market or will soon disappear entirely.

In the twelve sections in the attached paper, I respond to each of Professor Geist’s ten points in detail and add necessary context regarding the international rankings and how they portray Canada.

In addition to frequently refusing to use the most recent data available, wireless industry critics almost uniformly fail or refuse to recognize three major methodological considerations:

Canadians use communications services, including the Internet, Internet video, wireless services and smartphones more than just about anybody in the world.

Consumer wireless expenditures have to be measured on a “per-subscriber” rather than “per-subscription” basis to give a complete picture of Canadian wireless prices. Subscribers in many countries pay for multiple subscriptions, while North Americans typically do not.

Consumer wireless expenditures also have to be considered in the context of overall household expenditures and per capita incomes. Low prices in one country, even as a matter of purchasing power parity (PPP), do not necessarily mean that consumers there pay less for wireless services than Canadians do.

These three themes come up frequently in this paper because they underlie so many of the misunderstandings and misstatements about the Canadian wireless industry that its critics so often repeat (and that in turn get reported as news).

Even when those who seek to portray our industry in a negative light do report current (or close to current) figures, they often neglect to report the trends in the data, which give a more meaningful picture of what’s happening. Those trends – such as the estimated 49.5% year-over-year growth in smartphone adoption among customers of the top three Canadian carriers in 2012 (compared to just 28.2% among the top four American carriers) and the projected 44.5% growth in data as a percentage of service revenues in Canada (compared to just 24.5% in the U.S.) – disprove a variety of common allegations, including the one about Canada’s wireless market being uncompetitive.

The OECD’s biennial rankings of its member countries on a range of communications industry metrics have not historically represented Canada fairly due to methodology, but they are improving.

OpenMedia refuses to use the most current OECD data available, and instead relies on data from the 2009 OECD report, which were gathered in August 2008!

Looking at the post-paid service baskets in the 2011 OECD rankings that come closest to the average Canadian usage, the Canadian wireless prices reported (which are from only one brand, and not TELUS) are below the OECD average. We come out as the fifth-least expensive country in the high-use basket, for example.

While low-usage plans in Europe may be priced lower than in North America, European consumers often pay for two or more plans, such that per-subscription data do not tell the whole story. For that, you have to look at per-subscriber data.

1. Average revenue per user (ARPU) is high in North America because North Americans use their wireless devices more

Canadians (like Americans) are among the most data-intensive users of the Internet and smartphones in the world.

High ARPU is not evidence of high prices, but rather high usage, which is typical of any consumer product or service.

In any event, the OECD data show that as a proportion of both average household budgets and average per capita income, Canadians spend less on communications services than the residents of most OECD countries.

2. Canadian wireless prices are about average compared to peer countries, in spite of higher costs

Canadian wireless prices are about the same and, in some cases, lower than those in the U.S., the country that it makes the most sense to compare Canada to.

The 20% of Canada’s land area that is served by wireless service would rank as the 200th least densely populated country in the world.

Canadian carriers in the aggregate serve only 12 subscribers per square kilometre, compared to 37 in the U.S. and 453 in the Netherlands, for example.

Despite having the lowest subscription-to-square-kilometre ratio, Canada still maintains below average consumer wireless costs as a percentage of household expenditures and per capita income.

4. TELUS has been able to slash international roaming charges since going HSPA

TELUS’ very competitive international roaming rates, which were made possible by our move to a HSPA-based network in 2009 and our proactive negotiations with hundreds of international wireless carriers, are much lower than those surveyed in another 2011 OECD report, rendering it immediately outdated. We reduced our rates by up to 60% after the data for that report were collected.

While Canada has historically had lower wireless penetration than similar countries, this is due to our superior and ubiquitous wireline networks and the fact that commercial cellphone service started six years later in Canada vs. the U.S.

Unlike consumers in Europe, Canadian consumers generally only need one wireless subscription as opposed to two or more (mainly to arbitrage roaming rates in nearby countries), which underscores the importance of distinguishing per-subscription costs from per-subscriber costs.

Canadians are adopting smartphones at the highest rate in North America or Europe – with the penetration rate among the population increasing by almost 50% year-over-year – thanks to competition, not in spite of a lack of it.

10. TELUS is more spectrally efficient than Bell and Rogers

TELUS serves roughly the same number of customers as our major competitors with significantly less spectrum. We have no choice but to use what spectrum we have as efficiently as possible to serve our customers.

Canada’s wireless market is less concentrated than even the OECD average

The aggregate market share of the top three carriers in Canada is 90.1%, which is below the OECD average of 93.3%.

Eighteen countries have more concentrated wireless markets than Canada based on the aggregate market share of the top three carriers, and 22 countries have more concentrated markets based on that of the top four carriers.

At TELUS, we know we’re not perfect, but we’re getting better. We may be #3 in number of subscribers, but we’re working hard to be #1. We are proud to have earned industry-leading churn rates (in fact, we recently reported our lowest churn rate in six years) and among the highest independent customer satisfaction ratings in the industry (according to JD Power, as explained here).

When the telecom industry’s independent complaints resolution service, the Commissioner for Complaints for Telecommunications Services (or CCTS) released its 2011-2012 Annual Report, it showed that CCTS received 13 per cent fewer complaints about TELUS last year compared to the year before, and in a year when complaints about our industry as a whole went up 35 per cent. We were glad to see such great progress, but we know there’s more to do if we want to bring those complaints even lower.

You can see why we object so strongly to characterizations of the Canadian wireless market as uncompetitive and homogeneous. We work hard every day to earn the trust of our customers in an intensely competitive marketplace where consumers have many choices.

We are happy to have an open, constructive discussion about Canada’s wireless industry, but we think it’s fair to insist that the discussion be based on current data and rigorous economic analysis. If you think I’ve gotten something wrong, please say so. We started the TELUS Blog to have this kind of frank discussion, and as long as you respect our House Rules, we won’t delete your comments or call you names, like OpenMedia recently did to us.

If you are currently with one of our competitors and aren’t satisfied, please consider giving TELUS or Koodo a chance to show you what our customers already know – that we’re different from the other guys, and getting better all the time. You can learn more about how we put what matters to you at the heart of everything we do here.

This is overwhelming response that looks like a politician wrote it. A response is 42 pages and as convoluted as the contact you sign up for. In a nutshell just stop gouging customers and provide good customer support. Telus/Koodo is the worst signal coverage I have ever had. Try giving customers something for their money like improved signals then we wouldn’t feel so bad about paying higher rates.

Craig McTaggart5 years ago

Hello Wayne, thanks for your comment.

I’m sorry to hear that you’ve had trouble with our coverage. We’re constantly expanding it, but it takes time. You can help us improve by using our Network Experience App to report problems: http://goo.gl/GSVpD. We will do our best to use your feedback to make our network better.

We’ve also tried to make our contractual documentation as simple as we can, have a look: http://goo.gl/Wcbki.

We feel we offer our customers good value for their money. If you are dissatisfied, please consider calling us to talk about it: http://goo.gl/oBfYt (TELUS) http://goo.gl/4pbK5 (Koodo). We want you to be satisfied.

Jonathan Babbitt5 years ago

Thank you for this article. While I do feel that many of the criticisms of the Canadian cell phone industry were very true in the past, I have seen much of that change in the last few years. My main encouragement is for Telus to either match or go beyond the CRTC wireless code of conduct before it is enacted as I (and perhaps others) feel that the industry is only making these changes because they are required to, not because they wish to serve their customers better. My opinion on this would change if I saw a company go above and beyond on their own initiative. Or, if after the CRTC wireless code of conduct comes into place that the company would not advertise the changes as a positive thing that they have enacted on their own in the best interests of the customer (they are merely required to). You have provided a well-worded response and it makes me want to go through the other 42 pages.

Craig McTaggart5 years ago

Thanks, Jonathan, it’s a fair point. My colleagues and I have written here before about how we pioneered some of the rules that will probably go into the CRTC wireless code. Our policies will most likely exceed the code in other areas, too, and we probably won’t be alone in that regard. As we said in a recent CRTC submission, we think “service providers will compete to be the first to be able to say that they are in full compliance, since it would give them a marketing advantage”. So I agree with you.

Mike R.5 years ago

I have a vacation home in the US where I live for 4-5 months of the year. My experience is that cell phones are only slighty cheaper in Canada but internet and landline telephone service are a lot cheaper in Canada.

When I’m in the US I just put in a Verizon SIM into my iphone which gives me a local phone number and a bucket of minutes and data for about $60-70 a month. When I’m back in Canada I put my Telus SIM back into my iphone and usually pay $50-60 a month.

In the US it costs me almost $50 a month for a landline (I need it for my security system) and a whopping $45 a month for a measly 1.5 Mb/s internet service. In Canada I pay $28 a month for my landline and $35 a month for a 15 Mb/s internet service.

Complaining about the price of everything is a national pastime in Canada, whether it be cell phones or shoes. I wouldn’t take the complaints too seriously.

Andrew L5 years ago

Craig,
I just read an other interesting take on the situation related to the “Canadian Wireless Reality Check” and it’s using very current numbers from Merril Lynch – 2012 Q3 – check it out at: http://wordsbynowak.com/2013/03/18/wireless-myths/ – though they do fall in contrast to many of your assertations. To wit the ARPU in Canada is significantly higher than the US and way out of line with Europe and its still growing contrary to the rest of the pack. It challenges your contention that arpu is drinen by the data consuption rates of Canadians. but perhaps the biggest inditement of your claims is the demonstaration that wireless profit margins in Canada are amoung the highest in the developed world and has 3rd highest year over year growth.

Craig McTaggart5 years ago

Thanks for you comment, Andrew.

I have responded to Mr. Nowak’s March 18 blog post in my paper linked above – see pages 10-13 in particular. While Mr. Nowak does refer to current data — and should be applauded for doing so — he draws what I consider to be unsupportable conclusions from them. I encourage you to review the section on ARPU in my paper, as it discusses the relationship between Canada’s high usage rates and high ARPU levels, while undermining Mr. Nowak’s contention that Canadian prices are high due to a lack of competition.

Paul T5 years ago

Finally some common sense. Thank you for shedding some light on this Craig. Things have changed a lot recently and people really have many options when it comes to phones and plans. If a consumer wishes to use a lot of data and make many phone calls then they will naturally pay a higher price, that is their choice, it it not an obligation imposed upon by the industry. Same goes for someone who wishes to pay as little as possible, they can choose a prepaid plan at $10 a month. Again, the choice is theirs to make. The last point i would like to make is that their is this expectation amongst consumers that their data and phone calls always work, they expect zero down time and 100% uptime, well guess what? there are costs to providing such a strong and robust and VAST network. Nothing is free. Thank you

Smartphone adoption (which is growing at 49.5% year-over-year) and data as a percentage of revenue (which BoAML projects growing at 44.5% year-over-year) are both growing very fast. Canadians love their smartphones and value the convenience they provide. They also have many choices for where to get them and what network to use them on. The market is highly competitive and we’re fortunate to be attracting an ever-growing number of customers. We clearly disagree on what ARPU figures say about Canada, but for our part, we agree with ScotiaCapital’s Jeff Fan when he says: “We would argue that data ARPU growth driven by smartphone penetration growth is the sign of a healthy wireless industry.’

There’s a very simple way to determine the level of competitiveness that exists in any market: look at the margins. Last time I checked, the margins of Rogers, Bell and Telus were all up in the 40-50% range. That’s a massive margin – in any business. In fact it justifies the nickname often given to the Big 3 in this country: “Robellus”. Together with their combined market share of 90%, that tells you that there’s still plenty of room for competition.

Craig McTaggart5 years ago

Hello Will, thanks for stopping by.

The latest international market data show that the major carriers in Japan, Italy, Portugal and Switzerland have higher wireless EBITDA margins than in Canada, as do carriers in many emerging markets, despite lower ARPUs (e.g., Algeria, Morocco, Ukraine). Canada’s wireless market is also less concentrated than in most countries. For example, in Mexico, Norway, Switzerland and New Zealand, the *two* biggest carriers combine for over 80% market share, while in Canada, the three biggest make up 90.1%. Looking at the aggregate market share of the *four* largest carriers, all but four of the 27 OECD countries have more concentrated markets than Canada. The fact is that there are more competitors vying for consumers’ business in Canada than in most countries in the world, and we welcome the competition. We invest a significant amount of our revenues back into our networks to keep up with customer demand and expand our coverage in rural areas. We’ve invested $30 billion in technology and infrastructure across Canada since 2000. Canadian consumers have many choices, and we’re working hard to be their preferred choice.

I have this charge every month on my pre-paid account. Does this only apply to post-paid accounts?

Craig McTaggart5 years ago

You’re right, Colin, I misspoke. We don’t charge a 911 fee on post-paid plans (which represent 85% of our customer base), but we do on pre-paid. This is necessary to distinguish between the service credits that are available for the customer to use and amounts for other fees, which aren’t.

Stella5 years ago

Comparison of statistical data for argument sake is cool and all, but the reality and the fact is, it does not make the industry right. I signed up for your internet/tv service and within less than one year (10 months to be exact), the prices have gone up nearly 20%. What justifies this? I call in to your billing department questioning this 20% price mark and they tell me it is due to maintenance/expansion of your infrastructure. They tell me that they have provided notice in the previous bill that prices will be increasing. They also tell me that telus is trying to keep the costs low for customers while keeping within competitive pricing with other service providers. So I replied that it is then inevitable that our fees keep going up. Your rep said that if competition goes down, then of course, telus would adjust their fees to stay competitive. Here’s the problem:

1. Just because you send a stupid notice does not make it right to keep increasing fees every few months.
2. Telus COULD go lower, but Telus chooses not to because you are trying to stay slightly under what everyone else is charging, but still gaining that massive profit margin. you are NOT here for the customers, but for yourselves only. Sorry, no number of statistical data you are using in your 42 page post will change that.
3. Also, just because you are pulling statistics left and right does not mean the wireless industry is right. You can compare Canada to everyone and their mothers, but the fact still remains that the Big 3 are price gougers, end of story. When you try to compare yourselves with others in the world, you are basically saying, “hey look here, we’re bad, but we’re not the worst.” That does not make you good. You would think that a smart person like you would already get the hint that there is something wrong with the industry when there is such huge debate going on, but you choose to blindly believe there is nothing wrong and that subscribers consciously are making the decision to pay the higher fees for the services. Are you out of your mind? Who would want to pay so much more for so much less if they had a choice? Please don’t go believing that your customers are really that stupid.

On a side note, Colin Longman previously posted regarding the 9-1-1 fees, you acknowledge you have misspoke, and you still have not changed your article to reflect this? So people reading your 42-page article must also read through all these comments to find that you misspoke. What a way to mislead the reader.

All in all, good effort trying to cover up the truth with numbers and percentages, but sorry, you don’t fool me.

Craig McTaggart5 years ago

Thanks for the comment. I’ll make sure it gets to the right folks at TELUS.

As for the 911 fee, I was quite open about asking readers to tell me if I got anything wrong, and I’ll consider posting a revised version of the paper if it is warranted. My goal in the paper was to put the most current data I could find on the table so that readers can draw their own conclusions (unfortunately, not all the players in this debate are willing to do that). I respect that you have different views.

On pricing, we do work to keep our prices as reasonable as possible. However, with the price of everything from content for our TV service to fuel for our vehicles rising, an increase at this time was necessary. It’s important to note TELUS invests a substantial portion of its profits back into technology and infrastructure to meet growing customer demand – $30 billion since 2000 alone.

The upshot of the matter is that all 3 of the incumbent telecoms have 40-50% gross margins, and have similar pricing across the board – with some minor differences in 911 fees, unlocking fees, etc… The lower cost of a shared network between Bell and Telus, as well as the lowered cost of running an LTE network (I refer to Bell executive Wade Oosterman comments in point number 2 of professor Geist’s rebuttal) has not resulted in lower consumer pricing. If there were true competition, wouldn’t at least one carrier decrease their margins to provide lower prices and make up the lost margins by increasing their subscriber base?

Instead, all you see is a lockstep move in consumer pricing – only when one incumbent offers a “deal” do the other two match it (not better it), but they all stop the “deal” at the same time. Case in point: the 6 GB for $30 data deals – they usually only come up around the launch of a new Iphone, and promptly disappear within a month or two. Why doesn’t someone offer this as a permanent plan?

Also, why is it that you can get “special pricing” depending on where you happen to work or reside? Just because I don’t work with the government or a corporation, why is it that I can’t get the same deal that is being offered to those employees? Example, the Telus “Unlimited talk and text – 3 GB Share Plan” is $80/month on the Telus website, but is offered for $50/month to (certain) corporate employees – with no set-up and activation fees. I’m sorry, but that certainly doesn’t seem like “simplified pricing” to me. Whatever happened to Econ 101 – you earn more selling a $1 widget to 100 people than selling a $10 widget to 5 people?

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